As normal here, I will address it directly.
Several arguments:
1. Alan grows Apples and Betty raises Beef. Since Alan has so darn many apples, and Betty is drowning in cow patties, Alan and Betty will both benefit by trading some apples for some beef. Chuck raises cows, but his cows are far more expensive to raise than Betty's beef. Free trade says: Let Betty and Alan trade. Alan is better off, and so is Betty. Protectionism says that since Betty lives in Canada, we should prohibit Alan from trading with Betty, and instead make Alan trade with Chuck. In this case, Chuck is better off, Alan is worse off, and Betty is worse off. More specifically, the welfare of rich Chuck is up rather significantly, the welfare of rich Betty is down significantly, and the welfare of poor Alan is down a fair bit. Overall, Tariffs are a transfer from rich foreigners and poor locals to rich locals. See research suggesting that WalMart lowered the cost of living for the average American by ~$2,500 by lowering prices.
2. Who gets protectionist policies? Politically connected folks. Duh. Are there any other choices? Protectionism is a transfer of control from free market decisioning into the political realm. ALL transfers of power from individual decisionmaking into the political realm are (a) net-destructive of liberty, and (b) creating inequality, and (c) generally welfare destroying.
3. Blatantly stealing ideas from others: Did you know we have a huge floating factory in the Pacific that takes corn and turns it into cars? The factory happens to be called Japan...so we don't think about it properly...but it's really just a factory. Indeed, to an American, foreign trade is EXACTLY, 100% equivalent to a factory or process that does something better than how it is currently done. Indeed, I seem to remember a story ( I think I heard from Paul Hsieh ) about a doctor who invented a new device to do automated analysis of X-Rays, in order to find tumors. He was hailed as a genius. After several months, it came out that it wasn't a machine, but rather a telephone line...he was scanning and emailing the X-Ray scans to India, where they would diagnose, fill in a form, and send back a response. From the point of view of the American...the two processes are 100% identical. Both of them make for lower wages for American radiologists, both of them help the consumer, and radiologists will agitate for prohibitions on both. You cannot distinguish between the two activities by looking at the activity in one country. The only way of distinguishing between a labor-saving device (machine) and foreign trade is by noticing that the other country is also benefiting. Prohibiting foreign trade damages both my country and the other country. My consumers and the other country's producers lose. My producers win.
4. Hayek. 'nuff said. Actually, most folks don't understand Hayek yet. Hayek says, correctly, that the primary problem with government action is that there is high uncertainty, and even an uncorruptible superhuman central planner cannot make decent decisions about which industries will prosper if given protection, and which ones won't. Indeed, empirical studies, which I've linked to in the past, but can't find now, indicate that Infant Industry protection does not make for competitive industries any better than does no protection. Turns out that central planners suffer from Hayek's knowledge problem in planning infant industry protection as well.
Overall, Protectionism is about the politically connected and not the truly needy (regardless of political system), is never better than guessing about what needs protection vs. doesn't, hurts local consumers, transfers money from poor to rich, and gives excuses to the government to become more interventionist in the economy. All bad, all the time.
UPDATE: Foseti responds.
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2 comments:
The best argument I've heard for un-free trade is as a form of subsidizing long-term skill acquisition in growing, high-skill fields. IE suppose making electronics was both profitable and rapidly expanding, but requires a highly educated workforce. You can do free trade and use your comparative advantage in agriculture, but it's (let's say) relatively stagnant technologically and after the tech boom really takes off, you haven't developed the institutions and skilled workers to take advantage of the high margins.
The best example of this would be the East Asian countries that subsidized multinational corps setting up factories, turning away from whatever their static comparative advantage was to basically subsidize skill acquisition so the population becomes suitable for high-tech manufacturing sooner than they would otherwise be.
Yes this argument has very limited application, and it's different than the kind of protectionism we're debating today (we're talking about protecting well-established industries, and it's not clear that the outsourced industry is more skill-intensive than any others.) But this dynamic skill acquisition model is the strongest argument I've seen against free trade maximalism, although I agree that in static situations free trade is unarguably the way to go.
CF,
That's still susceptible to all of my arguments, and then some:
1. It will be done for the politically connected, not for the needy, and especially not for the internally innovative, disruptive folks.
2. Still screws the consumers, and transfers money to rich.
3. Still the same as an labor-saving device. We should prohibit those too in infant industries?
4. Planners still get wrong what to protect most of the time. Though, obviously, in hindsight, some of them get it right some of the time.
5. Historically,tech transfer happened by hiring experts from other countries who were already experts. $ talk. The example you give is unnecessary unless you're only hiring locals.
6. Even if you want to subsidize the native industry...direct subsidy is a much better path than tariffs. It doesn't screw the consumer as much.
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